Whither the Information Economy?

by James Heskett

Summing Up

Those responding to the piece titled "Whither the Information Economy?" voiced opinions that dispel any notion that the so-called phenomenon is an end in itself, or in fact anything more than a means to an end. Which end, however, is a matter of debate.

For Erich Almasy, the end is knowledge. As he puts it, "to gain more knowledge, we will have to think more." In his view, information is no substitute for thinking and knowledge. Nor, in the opinion of Suresh Annappindi, has new technology necessarily alleviated the problem of access to information.

For others, the end is better products and services. According to Bob DeNoble, "... information is a tool to help get the real work done. It enables us to produce food, clothing, and shelter, run our transportation and banking systems, and keep us educated and healthy." And Annappindi reminds us that the Internet "is the result of a product based society." All of this is notwithstanding the fact that manufacturing in our "product based society" represents less than 20% of U.S. gross domestic product these days.

While stressing the point that "information cannot ever replace food, shelter, clothing, etc.," Gary Myers raises an issue that might warrant further discussion. While he points out that information leads to improvements in the efficiency with which goods are produced, he then goes on to say, "At some point, the rate of improvement of production efficiency becomes asymptotic such that incremental improvements are nil." If this were the case, it could have real significance for economic planners. Allen Greenspan, take note. What do you think?

Original Article

Every so often a truly mindbending article comes along. For me, one of those was Harlan Cleveland's piece, "Information as a Resource" that appeared in 1982 in The Futurist. In it, Cleveland, a scholar and former Undersecretary of State, argued that a society based on information would look very different than one based on raw materials and heavy manufacturing, primarily because of information's unique properties.

The argument, optimistic in its tone, went something like this: Unlike goods, information is expandable without any obvious limits; is compressible for easier handling; is transportable at least at the speed of light; is substitutable for capital, labor, or physical materials; is shared among people, with an expansion of the total as it is shared; and doesn't drain our resources.

Although we are witnessing an explosion in the amount of and access to both data and information, real knowledge appears to grow very little.Erich Almasy (HBS MBA '75)Mercer Management Consulting

As if that wasn't enough, he asserted that information, in part because of these characteristics, is diffusive and hard to contain, especially that containing high proprietary value. Any number of people from President Clinton to Bill Gates to Sean Fanning, the youthful founder of Napster, would probably agree with the assertion.

While Harlan Cleveland foresaw the dimensions of the Information Economy, what he may have underestimated was the ease with which information, proprietary or not, could be transmitted and exchanged electronically on a "person-to-person" basis, with or even without an Internet intermediary.

Cleveland provided one of the first theoretic explanations for the New Economy. Because of information technology, we can sustain greater growth and lower unemployment than ever before thought possible through the advances in productivity made possible by a shifting "mix" featuring less product-centered and more information-centered economic activity.

Skyrocketing price-earnings ratios of information-rich corporations are a natural result of this. Growing ratios of market-to-book value that resulting stock prices produce can be justified as the monetization of valuable information assets that accountants have never seen fit to include as legitimate entries on balance sheets (other than as grossly misnamed "goodwill").

But wait a minute. Is there a limit to all this? Is there a point at which the endlessly (and some would claim geometrically) expanding universe of information of varying quality will become counterproductive?

For years, managers have lamented the fact that they have too much data and too little information. But can an organization or an individual have too much of both? And if it can, what happens then? Will it, like the German intelligence in World War II when it was fed massive amounts of both incorrect and correct information by the British, simply grind to a halt? Or will this just create a growing market for thus far inadequate antidote technologies such as search engines to help us cope with too much information?

To learn more:

Comments

Erich Almasy (HBS MBA '75)

Vice President, Mercer Management Consulting

Information as a resource implies that the desired endpoint is the aggregation, analysis, and transformation of data into information. I would argue that the true resource is knowledge, the processing and distillation of information into useful output. Although we are witnessing an explosion in the amount of and access to both data and information, real knowledge appears to grow very little. Certainly the heralded development of "knowledge management" tools yielded us no appreciable gain of the precious stuff. In Latin, the verb cogitare, "to think", becomes "to know" in the past tense. To gain more knowledge we will have to think more. That effort could well be independent of the amount of data and information we can collect.

Suresh Annappindi (HBS MBA '99) AVP - eBusiness First USA Bank

In some sense, availability of the right information has always been a precious commodity and society has been as much information based as product based. Good information and good products both are needed for higher growth and productivity. Information was always available in plenty, although efforts needed to get it were more earlier than in present times. We have had newspapers, television, radio, libraries, etc., for decades and centuries now and information overload is not a new thing. Internet has merely accentuated the magnitude of our perception and understanding of the dangers of information clutter and overload. And as before, people and organizations who can use information better will fare better in current times as well. Society, fundamentally, has not changed in its needs and use of physical commodities, such as automobiles, gadgets, etc., and a new medium of information - internet - would not be without limitations, and may not result in unlimited growth in productivity. And, let's not forget that internet is the result of a product based society.

Bob DeNoble (HBS MBA '72)

Principal, RDA Healthcare Consulting

About four years ago at my son's high school graduation, a speaker commenting on the "information super highway" noted that like any highway that manages lots of traffic, you will see sleek and efficient models and some real junk. The capability of distinguishing the difference requires critical thinking. Without this skill, the abundance of information has limited use at best and is dangerous at worst.

The other thought that comes to mind is that information is a tool to help get the real work done. It enables us to produce food, clothing, and shelter, run our transportation and banking systems, and keep us educated and healthy. Information is not an end in itself.

Gary Myers (HBS PMD '53)

President, North Florida Technology Innovation Corporation

To a large extent, the creation, compilation, storage, dissemination and utilization of information serves to improve the efficiency with which goods are produced. Information cannot ever replace food, shelter, clothing, etc. At some point, the rate of improvement of production efficiency becomes asymptotic such that incremental improvements are nil.

Daniel Hays (HBS MBA '99)

Associate, Pittiglio Rabin Todd & McGrath

While the information economy has certainly served to create new industries and to accelerate others, it is hard to believe that it can be used to explain the skyrocketing valuations of information economy stocks and others alike. It is far more likely that this is a residual effect, a combination of 1) An unprecedented infusion of cash into the free markets through the evolution of savings programs into self-managed funds 2) Greater awareness of the markets and liquidity of investing bought on by the newly available information and widespread trading and 3) A shift in the types of stocks being traded, from those that whose worth could be usefully measured by multiples of assets and earnings to those whose value is better measured by growth rates and multiples of revenue. The values are (or should be) the same, but the methods are undergoing a significant change.